How To Prevent Your Real Estate Contractor From Holding You Hostage

One of the reasons why I will never remodel again is because I hate dealing with contractors and building inspectors. It is an unfair playing field because they hold more power even though the homeowner is the one with the funds.

Please spend time remodeling while you're in your 20s and 30s for economic returns. Once you're in your 40s, unless you're a masochist, you won't want to remodel anymore.

The main way contractors hold homeowners hostage is by getting you to sign an attractive bid. Once the contractor collects your deposit or starts the work, you are at the mercy of the contractor's timeline and business practices.

If a contractor finds a more lucrative job, he will likely delay yours indefinitely. If a contractor wants to charge more for some work, he probably can up to a certain extent. In the scenario where you have a great contractor, hold onto them for dear life!

Switching costs are extremely high, which is why savvy contractors can get away with charging more and taking a longer time to complete the project. They can always blame something for the delay or the extra charge and you will have a hard time doing anything about it.

In this latest episode, let me share with you how my remodeling contractor tried to hold me hostage to extract more money. It is a new strategy I hadn't experienced before.

By sharing this story, it will wisen you up so you can save money and have a better remodeling experience. Further, I hope this story also propels you to invest in real estate more passively to protect your sanity.

How My Contractor Tried To Hold Me Hostage

When the pandemic began in 2020, I decided to buy a new house and remodel the ground floor of my old house. By expanding the livable square footage by ~300 feet, I could instantly create more value and boost future rental income.

About 90% of the way through with my ground floor project, my contractor finally began to work on building the deck. It was odd, since he had purchased the French doors to replace a fogged-out window 10 months earlier and he had lots of periods of inactivity.

By July 1, 2022, both the ground floor remodel and the deck were finally done. The ground floor remodel had taken two years to complete, when it should have only taken one year. But I didn’t push him hard because the upstairs was already rented. At least the deck had taken a more normal three months to complete.

Delaying The Final Inspection For 30 Days

All that was left to finalize both projects was to call for final inspection. But instead of calling right away, my contractor delayed for a month before he called for final inspection. Why wouldn't he want to complete the projects and collect final payment from me? I was flummoxed.

His delay caused unnecessary anxiety because the permit for the downstairs remodel was to expire on August 6, 2022. If we missed passing final inspection by August 6, 2022, we would have to apply for another extension and pay more money.

The first final inspection was for the ground floor on August 5, 2022. The second final inspection for the deck was scheduled for Monday, August 8, 2022.

I asked my contractor why the same building inspector had to come twice when he could just kill two birds with one stone. Inspecting the deck takes at most ten minutes. Something seemed off.

My contractor had no good answer except to say he'd try his best to have the inspector sign off on both projects when he arrived on Friday, August 5.

The Building Inspector Finally Came

On Friday, August 5, the building inspector finally came. I was giving my sister and her boyfriend a tour of the Palace Of Fine Arts in San Francisco when my contractor texted me the following message.

My Remodeling Contractor Tried To Hold Me Hostage, But I Escaped!

Not wanting to wait for his explanation I gave him a call. After several tries, he finally picked up.

He explained to me the downstairs was approved. Hooray! But couldn't he have just said so over text? Why create more anxiety?

The Inspector Holding My Contractor Hostage

I then asked my contractor about whether the deck was approved. He said “not yet” and that we had a problem. As part of approving the ground floor remodel, he and the inspector had gone all the way up to the top floor to inspect the fire alarms for safety. Once they were on the top floor, the inspector had noticed something amiss.

He had noticed a door that led out to a metal balcony with a railing under 42 inches high. I told my contractor the upstairs had nothing to do with the deck or downstairs remodel. I had purchased the property like that and it should be grandfathered in.

But my contractor basically said he was unsure he'd be able to get the inspector to approve the deck if I didn't raise the upstairs railing height. In other words, the inspector supposedly held my contractor hostage, who in turn, held me hostage!

My contractor said he could come over and do measurements so he could get his welder to raise the railing. That was a fair solution. However, I was annoyed by this whole situation. At least the downstairs remodel was approved. That was the most valuable portion of the remodel.

If I couldn't get my deck permitted, it was just as well. I'd save on paying permanently higher property taxes based on the cost of building the deck. I knew the deck was safe and built to code. It was just the inspector not wanting to approve my deck because of an unrelated feature of my house.

It Was All A Ploy By My Contractor!

That evening I decided to check if my signed permit card was already in the electronic database online. Sometimes it can take a while to record.

What I discovered online surprised me. Instead of only my downstairs remodel being approved, my deck was also approved! It turns out that my contractor was just trying to make me sweat in order to make more money.

My contractor wanted to use this extra time to bill me for additional labor hours. He figured the longer he stretched out the project, the more it would seem like his people had worked. While he knew I kept meticulous work and payment records, he hoped I would lose track and enable him to bill me for days his workers had not worked. 

Below are some timing details of the inspections for my deck I saw online. CFC means Certificate of Financial Completion.

How To Prevent Your Real Estate Contractor From Holding You Hostage

The details will now go on my home's 3-R report, which is like a home's report card. The 3-R report must be disclosed upon property sale. And having a record of permits approved is valuable when it comes time to sell.

However, my story also illustrates why many homeowners like to remodel without permits. Not only do you save on property taxes, you also avoid dealing with inspectors.

Contractor Kept Quiet About The Approval

After the inspector left on Friday, my contractor kept promising me on the phone my deck would get approved “or your money back.” He said he'd let me know on Monday about the status of my deck. But the following Monday came and I heard nothing back from him. In fact, at the time of this publication a week later, I still haven't heard from my contractor!

My contractor is stretching things out so he can come back to me and say how hard he worked to get the building inspector to approve my deck. By making me think it took many days or even weeks to get the deck approved, he hopes to charge me more money!

I'm just waiting to see how long it will take my contractor to get back to me because I'm curious. I'm also on vacation. But if he tries to pull anything, I'll just show the timestamp of the approval on August 5. Funny thing is, more than a month later, I've still not heard back from my contractor.

Check Online For Your Permit Status

So for those of you looking to remodel, don't trust the verbal or e-mail progress reports from your contractor. Listen intently and then check online your project's status. If you filed a permit, there will be detailed notes by date every step of the way. After all, you paid for the building department's service.

Here in San Francisco, you just go to this link, input your address, and can see Active Permits and Completed Permits sections. If your permit is under the Completed Permits section, you're good! Below is what I see for my two projects, completed on August 5, 2022.

Completed permits approved

How To Not Be Held Hostage By Your Contractor

I finally have the upper hand with my contractor. He wants to do more business with me but I don't want to. Further, I still owe him for a day of labor. I'm the captain now with the bargaining power.

If you don't want to be held hostage by your contractor, consider the following:

1) Take meticulous notes of the date, work done, hours worked, and amount paid. If you can, take pictures and videos of every stage. You shouldn't have to pay for work not done.

2) Check online for your project's progress report. The department of building inspection should have details by date of your project.

3) Agree to a deadline for when the project must be completed by. Consider instituting a penalty for every day that goes beyond the deadline. It may incentivize the contractor to stay on track. During the initial negotiation phase, instituting a penalty is more feasible if the contractor really wants your business and believes in themselves.

4) Offer a bonus if a project is done by a certain date and passes all inspections. A carrot is often better than a stick. Because having your contractor pay a penalty can be tough to enforce once the honeymoon period wears off.

5) Offer new projects if they do a good job. You want to incentivize your contractor as much as possible so they can win more business from you in the future. Just don't discuss how many properties you own as that might make him want to charge even more for your current job. My contractor straight up told me he charges more for remodels in more expensive neighborhoods, and so do all of his peers.

6) Check at least two recent references. Disgruntled clients will more than likely tell you the truth.

No More Remodeling For Me

Remodeling is a pain because you have to deal with so many people and unforeseen situations. Building codes are always changing as well.

For example, you might get one inspector who wants something one way and another inspector who wants something another way. This is unfair to the homeowner, but the inspectors hold all the power.

You might also have neighbors who complain or restrict you from doing something on your property. If a complaint is filed, an inspector will drive out to your house and make an assessment. In such a situation, you will end up paying for more work and lose precious time.

Remodeling is also painful because you might be dealing with shady contractors. They might also disappear for months and hold you hostage once they've accepted your money and started the job. Unless you want to start all over, you're at the contractor's mercy.

Finally, there are supply chain issues that can delay the delivery of goods. If a contractor installs an important part wrong or an important part arrives damaged, then your project will be delayed. One time, a metal shower bar arrived bent. As a result, the sliding glass doors couldn't close or open properly. That resulted in a five-week delay.

Remodel While You're Still Young

Remodeling is a young person's game. Do so while you still have the time, energy, and patience. With a lower wage, your time is less valuable so you can better afford all these delays.

Once you're over 40, I'd invest more in passive private real estate to save your sanity. Your time is much more valuable and your tolerance for BS declines. Further, you will have less patience for shenanigans. I am so much happier earning 100% passive real estate returns and income than I am from my physical rental properties.

The good thing is remodeled properties should sell for bigger premiums in the future given how much harder it is to remodel today. I'm glad to have added value to my rental property. However, I will never remodel another property again. It's simply too stressful and not worth the returns for me anymore.

Invest In Real Estate More Strategically

Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. 

Take a look at my favorite real estate investing platforms, Fundrise. It is free to sign up and explore. Fundrise focuses on single-family and multi-family rental properties in the Sunbelt, where valuations are cheaper and rent growth is stronger.

Fundrise has been around since 2012 and has consistently generated steady returns through the ups and downs of the stock market. The real estate platform has over 300,000 investors and manages over $3.2 billion. 

I've personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000. 

Action Items For Your Own Financial Health

To go deeper into building greater wealth and real estate, pick up a hardcopy of my new Wall Street Journal bestselling book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom.

Join 50,000+ others and sign up for my free weekly newsletter. Everything I write is based off firsthand experience and my knowledge as a finance veteran since 1999. Because money is too important to be left up to pontification.

About The Author

35 thoughts on “How To Prevent Your Real Estate Contractor From Holding You Hostage”

  1. For our last remodel, we’ve actually tried to be there when the inspector comes and can see what’s going on. I was literally there helping them install fire alarms at the last minute so we they could finish the final inspection. These guys were terrible…seriously they failed three final inspections.
    I also call the permit office to check up on them. I caught them in a lie saying they submitted a permit and it was taking a long time, when they didn’t even submit it. They underbid our project and held us hostage like you said. Additionally they were “paper contractors” and we had crew after crew of subcontractors cycling through. These guys were 5 stars on Yelp / Houzz, I don’t know how they get away with it.

  2. Question on this bit of advice for selecting a contractor:

    “Check at least two recent references. Disgruntled clients will more than likely tell you the truth.”

    How does one actually do that? There is no publicly available database of past projects for various contractors. Asking them for references of course creates selection bias as they won’t tell you the names of any disgruntled clients.

    I’ve been wondering the answer to this for a long time. Generally it seems like this is exactly why contractors make a lot of money – there is little to no information out there to hold them accountable and separate the good from the bad.

    1. I think just asking already weeds some out. When shopping for a new contractor, some never got back to us about references. You can ask searching questions about how they work, if they were over budget, took too long, etc. If someone used the same contractor for multiple projects over time it’s a good sign.

  3. I have been a long term subscriber and like most of you comments. I even invested in Farmland through your site. What boggles my mind as a 30+ real estate investor is HOW on earth were you advising folks to refinance in to 5-7 year adjustable rate mortgages when rates for a 30 year FIXED were at in the mid 2.5% again FIXED. That is simply insane advice. It was FREE money for 30 years there is no other way around that fact EVEN if would you were to sell in 3-5 year timeframe to avoid or reduce capital gains these were ridiculously LOW rates to give people option to NOT sell. Really BAD advice and sorry have to call you out that one. Even with the churn rate from your ads that was not cool.

    1. No worries, even though we are off topic. I like being called out for what I believe in.

      Because it’s best to match the fixed rate duration of your mortgage with how long you plan to own the home or hold the mortgage.

      If you could get a 30-year fixed at 2.5%, then you could get a 5/1, 7/1, 10/1 ARM for 1.5% – 1.875%. You’re saving money for 5-10 years over a 30-year fixed rate mortgage.

      The median homeownership duration is about 10 years. Why pay a higher rate than you have to in 40-year downward interest rate trend? You are welcome to as banks earn more profits off you on a 30-year fixed. Banks also love it if homeowners end up spending 30 years to pay off their home.

      See: Why adjustable rate mortgages are superior to 30-year fixed

      Share with us your mortgage situation and how long you plan to own. When an at what rate did you refinance at?

      My 7/1 ARM resets in 2027 because I bought a home in June 2020. I couldn’t time the bottom of rates and got 2.125%. But the home is up about $600,000-$700,000 since then.

      You can always refinance your mortgage, but you can never change the purchase price of your home.


  4. Ugh sorry that contractor is being shady as sh—. You’re definitely not the only one to deal with problems like this. It’s a royal pita to do any major reno projects these days. Glad you got your projects signed off though!

    I love watching home remod shows on TV but will not go through one myself. Way too stressful and time consuming. If I ever move I will only buy something in move-in condition that doesn’t require anything more than painting and simple landscaping.

  5. I did a remodel last year in San Francisco…very stressful. My contractor, (who was actually reasonable), estimated about 30-40% of remodel projects that he works on gets broken into by thieves looking for appliances, contractor tools, plumbing fixtures etc. Make sure you have a security system & insure all items!

    Also include a very large contingency fund. Everything in SF is $$$$. I almost doubled my initial budget for a modest remodel with mid grade finishes. The project turned out well but never again! Not worth the stress.

    1. Yikes on the thieves! Why do folks have to do so many bad things. So disappointing.

      A doubling of your budget is a lot. What were the main culprits?

      I’m glad you’re finished though!

      1. Lots of dry rot & I created a small bedroom/study. The cost of everything was going up literally every week!

  6. NW Islander

    Excellent post. After years in the real estate industry, I am now convinced that owning property is a lightning rod for tradespeople and service providers to take advantage of you. I’m toying with the idea of selling my primary residence and downsizing to a 2bed condo within a couple of years (implementing BURL!). While I enjoy my home, this is an expensive zip code.

    The cost of services has blown up in the last 2 years. Last month a cleaning service tried to invoice me over $600 for 2 hours of work by 2 people, when their proposal was $175. I’m still looking for a window-washing service that will not charge me thousands – last year I paid $4k to the only company that would call me back, and the job took 3 people 5 hours.

  7. Really sorry SAM for this bad experience, it reminds me the many problems I knew in the real estate sector and renting.

    Thank you for your article ;)

  8. Hi Sam, you mentioned recently that you will be looking for real estate opportunity in the next 12 months to purchase. I want to ask you if you have a general idea what you would do with your down-payment cash (assuming you have some lump cash sitting around), while you look for a good real estate investment target (SFH or condo, etc). I have pulled some money out of the stock market earlier this year, thinking I would re-buy stocks when they dipped further. However, stocks have rallied quite a bit from the lows and I don’t feel comfortable buying this rally at the moment. Would you just keep the extra cash in a risk-free savings account (online banks pay about 1.5~2% yield), while you look for a SFH or condo to purchase? I think most retail investors (like myself) is not nimble enough to do short term trades. So it seems like a better idea to keep the cash safe, while waiting for the next real estate investment opp. Thank you in advance if you don’t mind sharing what you would do in this case.

  9. I know remodels are stressful but we have a contractor who is worth his weight in gold! He charges me $50.00 an hour for himself and $50.00 per hour for his helper. All materials and subcontractor bills go directly to me so no up charging. We did a full gut on our house and he finished in exactly 4 months. It would have been quicker except for supply chain issues. He showed up everyday except 1. That day it snowed a foot and he was plowing all the neighbors driveways. We just had him do an outdoor kitchen and were going to have him remodel our condo this winter.

    I definitely realize he’s an outlier in the contractor business so like you said if you find a good contractor hold on for dear life!

  10. In Raleigh, NC the permits people send an email that links to every inspection result the moment it is logged by the inspector. My contractor put both me and him on for the email results, so we both received the information at the same time. I can also reverify online for a comprehensive inspection result/history. I’m surprised SF doesn’t have a similar feature.

    1. Sounds like an easy and no-brainer solution! Unfortunately, there is a lot of inefficiency here. For example, the San Francisco planning department paid millions of dollars to develop some online software for permit approvals. And then it didn’t work and they scrapped the whole thing and went back to old school during the pandemic, which didn’t work efficiently.

      The bigger the city budget, the more economic waste sadly.

  11. Ms. Conviviality

    My husband is a painter and works with a contractor that always adds a $1,000 (commission?) to my husband’s paint quote. His clients just accept the costs because he is a great contractor. The contractor gets the jobs done on time and is a perfectionist so his projects always come out looking great. My husband is happy because he gets paid what he believes the job is worth and doesn’t have to negotiate with the client or pick up any paint supplies. He just arrives at the job site and starts painting. My husband has done many jobs with the contractor where the subsequent project was from a referral from a previous client. The clients tend to be affluent and introduces the contractor to their equally affluent contacts. Because the contractor is in such demand, he can quote higher and pick and choose which projects he takes on. The contractor also appreciates my husband’s work ethic and quality of work so he makes sure to pay him within 24 hours of completing a job.

    1. Sounds like a win-win scenario and a great fit! Did you know that I love to paint as well? I tend to paint all my rooms, trim, and the outside of my house when there are changes to the windows and the trim.

      Very relaxing!

      1. Ms. Conviviality

        I totally agree that it’s relaxing. I often offer to go paint with my husband on the weekends. I’m kind of an artsy person so I like the transformation that comes with a new color and I challenge myself to see how straight of a line I can paint between the trim and wall. :)

        1. You guys are both insane. LOL. If you ever decide to come down to Southern California, I can offer you several painting projects for fun. :)

  12. Would it be more efficient to just DIY everything? Even if it involves buying tools and spending some late nights on the project at least you learn something at the end. Seems like managing contractors is just as hard as doing the actual work. With Youtube I can learn how to do about anything so I usually DIY my house maintenance completely. I have two bathrooms to remodel and I’ve been delaying starting due to what you mention in this article.

    1. You need the know how and a deep understanding of all the latest building, electrical, and plumbing code rules.

      You might also hurt yourself in the remodeling process. That would bum me out as I love to write and play tennis.

  13. I think this industry is ripe for disruption. The contractor industry is almost completely devoid of a customer relations. Unfortunately, and perhaps because there’s fewer going into the manual labor field, there’s plenty of people to turn and burn. Online reputation sites have made things a little better, I think.

    I usually get my work done through Lowe’s for this reason. If something goes wrong, there’s someone I can call. Of the projects I’ve had done through them, they’ve all been timely and below average on their bid.

    1. Will look into Lowe’s in the future. But I don’t think they’re future for me and remodeling anymore!

      I really want to soak in all the work that was done during the pandemic and just appreciate it for what it is. I will probably change a fence and maybe do some landscaping. Small stuff!

  14. A lot of them do love to get the contract and then delay whenever it suits them, especially if they get a call from a builder/developer (a source of endless future jobs) to come do something, while they know that they are unlikely to ever see you again.

    Although, in New York less than ten years, I have discovered it’s done a bit differently here. My wife, or a coworker, knows someone who knows someone who has a cousin, brother-in-law, etc. that does that sort of thing. Then there is some finagling and double-checking and they come, gab good-naturedly a bit about people you both know, they give an estimate (often less than it would be in other parts of the country, surprisingly), and then do a good job (often an outstanding job) at the set price in a reasonable period of time.

    Upon watching a bunch of guys from Brazil (yes, legally, we did check) replace our concrete slab patio with pavers, my Dad told me: “I dunno what you are paying them–but it’s not enough.”

    And no, it’s not because anyone is “connected” in the Mario Puzo sort of way. But they certainly don’t want it getting back to their sister-in-law, by way of her second cousin, that they are slackers or cheats.

    I note they do tend to want their money in cash, rather than check, and will generally offer a respectable discount for it.

    1. Why pay taxes if you can earn in cash right?

      The problem is not having a record unless you take a picture of them or they send you an invoice every step of the way.

      There is a certain discount level where a cash payment makes sense. Maybe it’s once the discount is greater than 12%. But for this kind of stuff, I really like having a paper trail in case something goes wrong.

      1. Yep. Something I read in a Travis McGee novel as a teenager has always stayed with me. It was something like: “If someone else is claiming it, you’d better be declaring it.”

  15. Sorry for what you are going through. I have been having a contractor finish my basement since January 2, 2022. However, the deposit was only $1,000 for a $40,000 job. It’s pay as you go, and so far, I’ve only paid $11,0000 even though they’ve done all framing, put in shower, drywall, and painting. I’m waiting on him to do the floors. What’s frustrating is I never know when he is coming. He sends me a WhatsApp the night before, I unlock my walkout basement door by 6:30 AM, and that’s it. The hardest part we had was the fire sprinkler vendor. It was impossible to find people, but my contractor was able to find someone who charged a reasonable price ($1200) vs everyone else ($5000). I am still waiting for this fire sprinkler to provide the final “tag” which the fire marshal understandably asked for. It’s been 3 months of asking. Hopefully the main contractor will come do the flooring in the next few days (he told me “this wee” 2 weeks ago!).

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